The Bitcoin price sell-off continues, but data highlights the need for a healthy correction

The price of Bitcoin (BTC) fell 5% in the last 24 hours and was trading at $41,645 on December 11th. Despite the sharp price correction, technical indicators and on-chain data show that Bitcoin is still showing strength as bulls attempt to push the price lower above $44,000.

On-chain data shows Bitcoin price is “excessive.”

Bitcoin fell as much as 7.2% to $40,300 on Coinbase, sparking discussion among analysts. Julio Moreno, head of research at on-chain analytics firm Cryptoquant, said the price of the flagship cryptocurrency is “overheated” after the recent rally above the psychological $40,000 mark.

Some metrics suggest that #Bitcoin price is overheating after the recent rally above $40,000 (red areas).

1. The Bull-Bear Market Cycle Indicator: Overheated bull phase for the first time since July.

2. Miner's win/loss sustainability: Block reward grows much faster than… pic.twitter.com/irpVvBSV3G

— Julio Moreno (@jjcmoreno) December 7

Further data from on-chain data analytics firm Lookintobitcoin highlighted the exhaustion of bulls. According to its December 2023 report, Bitcoin price has reached its short-term golden ratio multiplier target, highlighted by the Crosby ratio, which shows that Bitcoin's short-term price is at “extended levels,” which is a requires correction, or slows it down at least.

The Golden Ratio Multiplier is an indicator that examines Bitcoin's adoption curve and market cycles to understand how the price might behave over medium to long-term time frames.

Bitcoin Crosby Ratio Chart. Source: Lookintobitcoin

In other words, Bitcoin price reached an overbought state above $40,000 as buyer exhaustion set in. Note that the flagship cryptocurrency’s Relative Strength Index (RSI) showed that the price was massively overbought since December 5th.

BTC/USD daily RSI chart. Source: TradingView

This is an early sign that buying pressure may eventually fade, as traders saw the rally losing steam and may decide to book profits.

Bitcoin price is facing strong resistance at around $44,000

The ongoing correction in the Bitcoin market is due to the stiffness of the barrier around the $44,000 supply zone. The Lookintobitcoin Golden Ratio Multiplier indicator, which examines Bitcoin's adoption curve and market cycles, shows that the 1.6 multiplier target has now been achieved around the $44,000 area. Note that BTC was stuck here last week, “unable to convincingly break above it.”

Bitcoin Golden Multiplier Chart. Source: Lookintobitcoin

In other words, Bitcoin price is facing stiff resistance in this supply-shortened area, making it a difficult hurdle for bulls to overcome.

The stiffness of the barrier at $44,000 is underscored by on-chain data from IntoTheBlock's In/Out-of-the-Money Around Price (IOMAP) model (see below). According to the IOMAP chart, this level is between the price range of $43,346 and $44,627, where approximately 585.77 BTC were previously purchased by approximately 1.43 million addresses.

Bitcoin IOMAP chart. Source: IntoTheBlock

Any attempt to push the price above this level would be met with aggressive selling from this group of sellers who may be looking to break even.

Related: Crypto Long Liquidations Worth $300 Million – 5 Things to Know About Bitcoin This Week

Can Bitcoin Sustain the Uptrend?

However, the ongoing correction could be a bear trap as it can be viewed as a healthy correction to an otherwise broad uptrend that has been established over the past few months.

Additionally, data from crypto market research firm Santiment showed that Bitcoin’s foreign exchange outflows were increasing. According to the chart below, BTC exchange flow balance is now at -347.

Bitcoin exchange flow. Source: Santiment

The negative value shows that BTC outflows are outpacing inflows, suggesting that investors are more inclined to hold than sell, which is a bullish sign.

This suggests that the recent decline towards $40,000 could be a short-term correction, giving traders the opportunity to buy more on the decline before resuming the uptrend.

From a technical perspective, Bitcoin price was above all major moving averages, which maintained its uptrend. Notably, these chart overlay indicators showed areas of strong downside support.

The Moving Average Convergence Divergence Indicator (MACD) was still moving above the neutral line in positive territory. The MACD line (blue) was still above the signal line (orange) after crossing above it on October 16, indicating that market conditions were still favoring an uptrend.

BTC/USD daily chart: Source: TradingView

Therefore, BTC price is likely to continue rising from current levels, with buyers aiming for a break above $44,000. Note that a clear breakout above this level could see Bitcoin rise to the psychological $50,000 mark by the turn of the year, when the US Securities and Exchange Commission is expected to make a decision on applications for exchange-traded Bitcoin before or in the year The fund will meet on site in spring 2024, if the next Bitcoin halving takes place.

This article does not contain any investment advice or recommendations. Every investment and trading activity involves risks and readers should conduct their own research when making their decision.

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